EUR/USD Forecast: Can US economic and political misery continue propelling it higher? Critical data eyed
|- EUR/USD has advanced amid weak US data and ongoing political uncertainty.
- US services data, political developments, and new tariffs on EU goods set to dominate trading today.
- Thursday's technical chart is showing improvement after EUR/USD broke above the downtrend channel.
Disappointing data has been weighing on the US dollar – for the second consecutive day – and investors are bracing for another critical release today. Can EUR/USD extend its recovery?
US private-sector job growth has slowed down in September according to ADP – America's largest payroll provider. The increase of 135,000 positions has fallen short of expectations and has also been accompanied by a downward revision for August. Wednesday's ADP Non-Farm Payrolls report joined Tuesday's devastating Purchasing Managers' Index (PMI) for the manufacturing sector. ISM's influential gauge dropped to 47.8 points – the worst in over ten years. Scores below 50 reflect contraction.
And now, all eyes are on the ISM Non-Manufacturing PMI. Contrary to manufacturing, the services sector has been enjoying solid growth, buoyed by robust consumption. The American consumer has been holding the economy on its own forward and investors would like to see this trend continuing. Economists expect a retreat from 56.4 points in August to 55 points in September – still representing satisfactory growth.
See US Service Sector September PMI Preview: How slow is slow?
Trump's troubles, Democrat developments
The US Dollar has also been struggling with political developments. Democrats' impeachment inquiry into President Donald Trump's alleged abuse of powers in the "Ukraine-gate" scandal is advancing. The opposition has summoned various officials involved in the matter to talks behind closed doors. They have also warned that refusal to cooperate with the investigation may be seen as obstruction of justice.
Trump has hit back and attacked his rivals. He called Adam Schiff, Chair of the House Intelligence Committee, a "traitor" that should be dismissed in disgrace. According to FiveThirtyEight, a polling website, Americans are now supporting impeaching Trump for the first time – albeit by a minor gap of 1.6%. Further developments are expected today.
Developments in the Democratic Party have also weighed on sentiment. Senator Elisabeth Warren – which champions financial regulation – is now seen by several pundits as the front-runner to win the nomination. Former Vice President Joe Biden – that led the polls for months – has seen his support eroding amid the inquiry. Trump tried to dig up dirt about Biden and his son Hunter – and some voters are shying away from the former VP – despite the lack of proof of any wrongdoing.
Moreover, Senator Bernie Sanders – which shares similar positions with Warren – has suspended his campaign due to medical issues. If Sanders drops out of the race, his supporters may fall behind Warren – easing her path to clinching the nomination and facing Trump. Investors are likely to frown upon a choice between Warren's anti-bank stance and Trump's trade wars.
The inflow of news has sent investors away from stocks – which tumbled on Wednesday – and into the safety of bonds. The resulting fall in bond yields implies higher chances of the Federal Reserve cutting interest rates later this month and depresses the greenback.
More Stock market crash has three drivers – and they are here to stay
New trade front
The euro's advance against the greenback has been limited due to the announcement of new US tariffs on European goods. The administration is taking advantage of the World Trade Organization's (WTO) ruling against the EU for subsidizing Airbus – the European aviation giant. The US is set to slap duties on aircraft, alcoholic drinks, and other European products on October 18.
The EU has expressed anger at the new levies as a parallel investigation into Boeing – America's planemaker – is set to result in a ruling in favor of the EU next year.
Overall, US data, trade, and politics are set to move EUR/USD today.
EUR/USD Technical Analysis
EUR/USD has broken above the downtrend channel – a positive development. On the other hand, its move above the 50 Simple Moving Average has not been confirmed. Upside momentum is minimal. Overall, the picture has improved, but the currency pair is still not out of the woods.
Resistance awaits at 1.0960, which is emerging as a double-top after capping EUR/USD in recent hours and also in late September. It served as support beforehand. Next, we find 1.0995, which provided support in mid-September, and 1.1025, which held it down around the same time.
Support awaits at 1.0926, which was a double-bottom in September before EUR/USD crashed to new lows. 1.0905 was the low point on Wednesday and also works as support. The 2019 low of 1.0879 – recorded earlier this week – is the next line to watch.
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